More jobs, please

Paul Krugman of the New York Times:

But there’s also, I believe, a question of priorities. The Fed sprang into action when faced with the prospect of wrecked banks; it doesn’t seem equally concerned about the prospect of wrecked lives.

And that is what we’re talking about here. The kind of sustained high unemployment envisaged in the Fed’s own forecasts is a recipe for immense human suffering — millions of families losing their savings and their homes, millions of young Americans never getting their working lives properly started because there are no jobs available when they graduate. If we don’t get unemployment down soon, we’ll be paying the price for a generation.

So it’s time for the Fed to lose that complacency, shrug off that fatalism and start lending a hand to job creation.

Why do banksters get a hand and the economic engine of the country ... the middle class ... gets the finger?

House Finance Committee actually did something!

The Washington establishment suffers a serious defeat
By Glenn Greenwald

Something quite amazing happened yesterday in Congress: the House Finance Committee -- in a truly bipartisan and even trans-ideological vote -- defied the banking industry, the Federal Reserve, the Democratic leadership, and mainstream Beltway opinion in order to pass an amendment, sponsored by GOP Rep. Ron Paul and Democratic Rep. Alan Grayson, mandating a genuine and probing audit of the Fed. The Huffington Post's Ryan Grim has the best account of what took place, noting:

In an unprecedented defeat for the Federal Reserve, an amendment to audit the multi-trillion dollar institution was approved by the House Finance Committee with an overwhelming and bipartisan 43-26 vote on Thursday afternoon despite harried last-minute lobbying from top Fed officials and the surprise opposition of Chairman Barney Frank (D-Mass.), who had previously been a supporter.

The gutting of the US Treasury

We've known about this for years. And it's just now coming to the attention of the media? Just look for fatcat defense contractors and check their bank balances. We want our money back. And notice, not a peep from the Republicans about this horrific fraud, but look now at how they whine about Obama's stimulus package.

Beginning in April 2003, one month after the invasion of Iraq, and continuing for little more than a year, the United States Federal Reserve shipped $12 billion in US currency to Iraq. The US military delivered the bank notes to the Coalition Provisional Authority, to be dispensed for Iraqi reconstruction. At least $9 billion is unaccounted for due to a complete lack of oversight.

The initial $20 million came exclusively from Iraqi assets that had been frozen in US banks since the first Gulf War in 1990. Subsequent airlifts of cash included billions from Iraqi oil revenues formerly controlled by the United Nations. After the creation of the Development Fund for Iraq—a kind of holding pit of money to be spent for “purposes benefiting the people of Iraq”—the UN turned over control of Iraq’s billions of dollars from oil revenue to the United States.

When the US military delivered the cash to Baghdad, the money passed into the hands of an entirely new set of players—the Coalition Provisional Authority (CPA). The CPA had been hastily created by the Pentagon to serve as the interim government in Iraq. On May 9, 2003, President Bush appointed L. Paul Bremer III as CPA administrator. Over the next year, a compliant Congress gave $1.6 billion to Bremer to administer the CPA. This was over and above the $12 billion in cash that the CPA had been given to disburse from Iraqi oil revenues and unfrozen Iraqi assets.

Few in Congress had any idea about the true nature of the CPA as an institution. Lawmakers had never discussed the establishment of the CPA, much less authorized it—odd, given that the agency would be receiving taxpayer dollars. Confused members of Congress believed that the CPA was a US government agency, which it was not, or that at the very least it had been authorized by the United Nations, which it had not.

The Authority was in effect established by edict outside the traditional framework of American government. Because it was a rogue operation, no one was responsible for what happened to that money. Accountable to no one, its finances “off the books” for US government purposes, the CPA provided an unprecedented opportunity for fraud, waste, and corruption involving American government officials, American contractors, renegade Iraqis, and many others. In its short life more than $23 billion would pass through its hands. And that didn’t include potentially billions of dollars more in oil shipments the CPA neglected to meter.

Incidents of flagrant abuse were rampant. Of 8,206 “guards” drawing CPA paychecks, only 602 actually existed; the other 7,604 were ghost employees. Halliburton charged the CPA for 42,000 meals for soldiers while in fact serving only 14,000. Contractors played football with bricks of $100,000 shrink-wrapped $100 bills.

It's our money you're spending now

So you corporate guys get to be accountable to us, right?:

Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

``The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. ``In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

``It's your money; it's not the Fed's money,'' said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. ``Of course there should be transparency.''

Hmmm. Okay, at least you'll rein in your profligate spending?:

AIG is hurting so bad that we just gave them another $40 billion, while execs live it up at another luxury junket, this one costing $343,000. KNVX uncovered another high-priced conference taking place at the Pointe Hilton Squaw Peak Resort in Phoenix, AZ. They reported that AIG made efforts to disguise its presence, making sure no AIG iconography was out in the open. One hotel employee said that staff was forbidden from even saying the word AIG. AIG said seminars like this, which was for independent financial advisers who steer customers to AIG, are essential to its business. They also said that most of the seminar's costs would be picked up by other corporate sponsors. AIG said in a statement, "We take very seriously our commitment to aggressively manage meeting costs."

This 'conference' happened AFTER the pheasant shoot and the negative news AIG received from that. Slow learning curve or an incurable sense of entitlement?

Reserve Fund shut out, cutting rates, and liquidity traps

Start burying your gold in the backyard....

The national “bank holiday” that ushered in the New Deal in 1933 locked up the public’s cash for four days. The crisis that hit last month at the Reserve Fund, the nation’s oldest money market fund, has frozen hundreds of thousands of customer accounts for more than six weeks — with no sure end in sight.

At least 400,000 people, and perhaps as many as a million, can’t get access to their savings, a problem that has quietly persisted in spite of widely publicized federal efforts to restore confidence in money-fund investments.

Some of these customers — who, like most Americans, assumed their money funds were as safe and accessible as bank accounts — are getting desperate.

And on the subject of money.... The feds just cut rates again:

NEW YORK (CNNMoney.com) -- The Federal Reserve cut a key short-term interest rate by a half-percentage point Wednesday and expressed continued worries about the damage being done to the economy by the ongoing crisis in the financial and credit markets.

The rate cut put the central bank's federal funds rate at 1%. That matched the lowest level for this overnight bank lending rate ever -- the last time it was at 1% was from June 2003 to June 2004.

Investors had been expecting a half-point cut and some were betting that the Fed would even cut rates by three-quarters of a point to 0.75%.

The Dow Jones industrial average, which had been higher ahead of the Fed's decision, turned lower shortly after the announcement.

Is anyone in charge thinking about a liquidity trap?:

Here’s why these events are distressing: When the Fed douses the monetary system with cash but banks hoard it, monetary policy no longer works and the economy starts to crash. This is called a “liquidity trap” and it occurs when interest rates are at or close to 0 percent and monetary policy is no longer effective. Newly minted money is injected into the banking system but trapped by financial institutions that are paralyzed by fear. When banks don’t recycle their money through normal lending activity, it doesn’t matter how much the Fed increases the money supply. Monetary policy just won’t work. Failing monetary policy usually means that we are going to have a recession, or worse.

This is what happened at the beginning of the Great Depression and during the Japanese banking crisis of the late 1990s. In both cases, economic activity slowed dramatically and deflation occurred. No matter how hard the central bankers tried to pump money into the economy, it wouldn’t work.

Use plastic mayonnaise lids on the jars, the metal ones rust.

Or better yet, let's all go to Zimbabwe!

What do you mean foxes can't guard the henhouse?

The inmates can't run the asylum? ... Corporations can't self-regulate?

I'm shocked, shocked, I tell you!!

In opening statements, Rep. Henry Waxman, D-Calif., committee chairman, said the current economic crisis could have been prevented "if regulators had paid more attention and intervened with responsible legislation. The list of regulatory mistakes and misjudgments is long and the cost to taxpayers and the economy is staggering."

Waxman put Greenspan on the spot, asking if he made any mistakes during his tenure as Federal Reserve chairman that may have contributed to the mortgage crisis.

Greenspan said he made a mistake in presuming that lenders themselves were more capable than regulators of protecting their finances. He said he was "shocked" when that system "broke down."

"I still do not understand exactly how it happened," said Greenspan.

Well... you see, Mr. Greenspan, it's like this.... human nature by default is self-obsessed and greedy. We must assume that those who know they won't be caught will do things that benefit themselves, ignoring the cost to others. We need checks and balances built into the system. When you take those away, you see the wreckage before you as an illustration of the end result.

Will this lesson take? Nah, I give it ....oh... another twenty years or so before we hear the pleading for deregulation again... long enough for the next generation of neocons to spawn and for voters to forget.

crossposted at American Street

Abolish the Federal Reserve?

Economy 101 with Jim Rogers: Stop bailing out the investment banks. Let them go bankrupt.



Copying the text in full:

Somebody at CNBC, billed as "America's business channel," made a mistake. They allowed Jim Rogers, investor and buddy to George Soros, to get on and slam the Federal Reserve.
Not only slam the Fed, but call for it to be abolished.
Somebody at CNBC was asleep at the switch, or the kill button anyway. Because you never hear such talk over the corporate media, an entity owned by the same banking and financial interests that prop op the Fed and the funny money system.
"How much money does the Federal Reserve have?" Rogers asks. "I know they can run their printing presses forever, but that is not good for the world, inflation is not good for the world, a collapsing currency is not good for the world. It means worse recession in the end."
Of course, recession — or, depending where you are situated in the funny money system, depression — will be a good deal for the bankers, as it will wipe the board clean and allow them to consolidate and at the same time destroy the once heralded middle class, a necessary task as our rulers move toward their plan to impose serfdom on the masses, or that is to say those who are not already serfs and peons, working for a dollar or two per day.
"I will ask you this," one of CNBC's talking heads asks Mr. Rogers, "what would be the first two things you would do if you were in Mr. Bernanke's seat tomorrow morning?"
"I would abolish the Federal Reserve," avers Rogers, "and I would resign," a response that brings nervous laughter all around at the CNBC studios.

The Deciderer has speechified!

WASHINGTON (AP) -- The economy nearly stalled in the fourth quarter with a growth rate of just 0.6 percent, capping its worst year since 2002.

Wednesday's Commerce Department report showed that the economy that deteriorated considerably during the October-to-December quarter as worsening problems in the housing market and harder-to-get credit made individuals and businesses more cautious in their spending. Fears of a recession have grown, even as inflation remained elevated.

For all of 2007, the economy grew by just 2.2 percent, the weakest performance in five years, when the country was struggling to recover from the 2001 recession. The housing collapse was the biggest culprit; builders slashed spending on housing projects by 16.9 percent on an annualized basis, the most in 25 years.

But that doesn't matter! Consumers are confident!:

Consumer spending, which is a key to economic activity, slowed to a two per cent annual pace in the fourth quarter, down from 2.8 per cent in the previous quarter.

Businesses also responded by shaving their inventories of goods, which trimmed 1.25 percentage points from fourth-quarter gross domestic product.

"The U.S. economy fired on just two cylinders late last year (business investment and exports), both of which are likely to downshift just when the consumer faces brisk headwinds," said BMO Capital Markets economist Sal Guatieri in a commentary.

"Looking ahead, we expect consumer spending to slow further in the first quarter of 2008, reflecting softer labour markets, elevated energy prices and declining house prices," said RBC economist Rishi Sondhi.

"On the corporate side, we also expect some weakening in business investment, owing to the effects of the financial market deterioration," Sondhi added.

We're not panicking:

WASHINGTON (AP) -- The Federal Reserve on Wednesday cut a key interest rate for the second time in just over a week, reducing the federal funds rate by a half point. It signaled that further rate cuts were possible.

The Fed action pushed the funds rate to 3 percent. It followed a three-fourths of a percentage point cut on Jan. 22, a day after financial markets around the world had plummeted on fears that the U.S. economy was heading into a recession. That decrease had been the biggest one-day move in more than two decades.

The half-point cut Wednesday followed news that the economy had slowed significantly in the final three months of last year with the gross domestic product expanding at a barely discernible pace of 0.6 percent, less than half what had been expected. The report came amid increased concern from several quarters about a possible recession.

In a brief statement explaining their decision, Federal Reserve Chairman Ben Bernanke and his colleagues said that "financial markets remain under considerable stress."

Recalling an earlier post, remember the discussion of liquidity traps.

But there's no need for panic. Not yet, anyway.

So do I start burying gold coins in the backyard

Or not?:

...the US economy really is bewildering. The government says gross domestic product expanded at an annual rate of nearly 4 percent in the third quarter, the fastest pace in a year and a half. The stock market is still up by 4 percent for this year, despite a sharp 3 percent drop on Nov. 7. On the other hand, growth in consumer borrowing slowed unexpectedly in September. Some economists argue that the US is teetering on the brink of a recession, if it isn't in one already.

Oil has exploded to nearly $100 a barrel, gold is near an all-time high, and the cost of food is soaring. It seems like high prices are breaking out all over, right? Yet the core rate of inflation is less than 2 percent a year, according to one widely followed measure. Confusion reigns right on up to the Federal Reserve, whose interest ratesetters are openly disagreeing about whether more cuts are needed.

Step back a little, though, and the situation becomes clearer. What we're observing, in all its bizarreness, is the ancient paradox of what happens when an irresistible force meets an immovable object. The irresistible force in this case is the US economy, which has managed to expand through all kinds of adversity for more than 15 years, aside from one brief recession in 2001. The immovable object is a wall of debt that accumulated during several years of profligate lending and now can't be paid back. The risk has increased for a generalized credit crunch that puts both borrowers and lenders in dire straits.

So, either the US economy will overcome the debt crisis and keep growing, or it won't. It's that simple -- and that important, with millions of indebted homeowners struggling to stay above water, the stock market seesawing uncertainly, and just a year to go before the next President is elected.

Dear god. We have one more year of George Bush. I think I'll go get my shovel....

How can you restore confidence when the dollar and house prices are tanking?

Bet you retail's counted-on-to-keep-in-the-black Christmas spending spree will be a dud, too:

The dollar has fallen to yet another all-time low against the euro, after further weak US economic data.

Figures showed that US consumer confidence has fallen to a near two-year low, while house prices have seen the sharpest drop in 16 years.

Analysts said the data boosted expectations that the Federal Reserve will cut interest rates still further.

In early trading on Wednesday, the euro hit a high of $1.4162, before pulling back to $1.4131 by 2230 GMT.

'Anti-dollar momentum'

The Fed cut US interest rates to 4.75% from 5.25% last week, in a move aimed at restoring confidence in both the housing and financial markets.

And then this by Max Fraad Wolff of The Asia Times:

New data for September are available now - after all, it is September now. These data suggest rising prices led by surging oil, wheat, gold and foreign-currency prices. Not to worry, the Fed will monitor that while pumping money into banks and slashing rates to prevent the economic downturn that has already arrived!

In early August it was clear that foreclosures were spiking, markets were boiling over and panic was rife. Bernanke decided that it was time to sound the all-clear with a cautionary note on inflation risks. After all, oil was a whopping and scary US$70 a barrel back then. Now it has settled down to $82, and so the worry has lifted?

Food costs - especially wheat - have surged in the month since the Fed worried about inflation. I guess that is why we are now worried about financial-market conditions. Across the one month and one week between the meetings, the broadest US stock-market index, S&P500, went from 1,476.71 to Monday's close of 1,476.65. This must have been the radical deterioration that caused the about-face!

Bernanke is ideally focused on inflation-fighting, price stability and economic growth. It would seem he is concerned about bank demands for liquidity and equity-market indices. I am not saying there is anything wrong with that. I am saying the talk, the action and the statements are not anywhere near to being on the same page.

[snip]

The truth is that Tuesday's reassurance and logic are as frightening as the logic and all-clear sounded on August 7. Buckling under Wall Street pressure and slashing rates help stock prices. The way and timing in which the discount rate was cut - twice now - attack market shorts and artificially push up stock prices.

Thus it will be seen as genius by those you hear on TV, radio, and many newspapers. I am concerned that the Fed acted late, is confused about where we are in the calendar year, pays no mind to its recent statements, and is acting to head off future economic trouble that everyone else knows is already here.

Now... just exactly how do I go about changing my dollars into Euros?

What is that whistling sound?

Via Sorghum Crow at Sorghum Crow's General Store, The Telegraph:

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

[snip]

"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

[snip]

There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.

The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit - expected to reach $850bn this year, or 6.5pc of GDP.

And also from The Telegraph, China gets in the act:

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

[snip]

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Via JJ at Unrepentant Old Hippie, the Canadian 'loonie' dollar:

TORONTO - Boosted by high commodity prices and a weakening U.S. dollar, the loonie reached parity with the greenback Thursday for the first time in nearly 31 years, promising to boost the energy and import sectors and give consumers cheaper vacations but spelling more trouble for Canada's industrial heartland.

The loonie, which has been gaining on its American counterpart since bottoming out below 62 cents in early 2002, has recently been on a spectacular run, up from 95 cents at the start of September and from under 90 cents last spring.

And via Atrios at Eschaton:

Losses from sub-prime mortgages have far exceeded "even the most pessimistic estimates", US Federal Reserve chairman Ben Bernanke has said.

His comments to a US finance committee come two days after the Fed cut base interest rates to 4.75% from 5.25%.

[snip]

Mr Bernanke told the committee that US mortgage woes were set to continue - especially with adjustable rate mortgages (ARMs).

Proceedings for about 320,000 foreclosures - or repossessions - were begun in each of the first two quarters of 2007 he said, against an average of 225,000 per quarter in the past six years.

"With house prices still soft and many borrowers of recent-vintage sub-prime ARMs still facing their first interest rate resets, delinquencies and foreclosure initiations in this class of mortgages are likely to rise further," he said.

Mr Bernanke added that it was difficult to be precise about how many repossessions would take place, but he said that in normal circumstances about half of homeowners who were given repossession notices ended up losing their homes.

"That ratio may turn out to be higher in coming quarters because the proportion of sub-prime borrowers, who have weaker financial conditions than prime borrowers, is higher," Mr Bernanke said.

Do we start stuffing our mattresses with Euros? Or do we start burying jars of gold coin about our backyards?

Can anyone tell us how much trouble we are in?

A snowball rolling down a hill

And getting bigger all the time:

Ben Bernanke, the Federal Reserve chairman and the man who controls the central bank strings, made a game effort to explain the numbers to legislators here this week.

The big demographic bulge known as the baby boomers is getting ready to retire, he noted. Meaning they will start to collect social security, and will likely require considerably more medical attention.

Those two items represent an unfunded liability that can also be measured in the trillions, and no one has done a thing to prepare for it.

Bernanke delivered a simple lesson about the public ledger sheet. Basically, that the money has to come from somewhere.

Either taxes have to go up, and considerably, or spending has to be slashed on an unheard-of scale. Keep borrowing, and the public debt balloons so fantastically it becomes an unmanageable fiscal crisis.

"This is sort of like a snowball rolling down the hill," said Bernanke, striving for a metaphor to impress a panel of skeptical politicians. "It's already a pretty big snowball, but it's going to get a lot bigger a lot faster."

And:

A lot of wags have noticed that for the US stock market, bad news is frequently treated as good news. Unemployment is up, or industrial production is down, and stocks rally (due to attendant possibility seen in these reports of upcoming Fed interest-rate cuts). However, when major financial institutions have what are delicately called "liquidity issues" (ie, their loans aren't being paid back - they have no income), that is always bad news. What if the bank defaults, declares bankruptcy? Other banks that it had borrowed money from now won't be getting paid back, they'll lose whatever income stream they were receiving from the first bank. The same with that bank's creditors, and then other banks and so on.

This kind of cascading financial catastrophe is often called a "contagion", and with good reason. Like a virus, it can spread and bankrupt the entire financial system. It almost did in 1998, during the LTCM hedge-fund crisis; in 1929,in an era when the worldwide financial system was far less globalized and integrated than it is today, after the Great Crash it actually did, and so initiated the Great Depression of the 1930s.

Is it over? Not necessarily. Two little-known indicators that more investors should be cognizant of are what are called the VIX and VXN indicators. (Put these letters in the stock symbol line of your quote website; they should come up - watch how their values move inversely to stock prices.) Technically, what these two indices measure is what is called stock-option volatility (stock "beta", in jargon), but what they really tell smart investors is just how much fear there is in the markets. When these levels get very high (roughly above 30 in both indices; after the selling caused by the Enron corporate-management scandals of 2002, the VXN actually topped out over 70), it indicates that the market has seen so much fear-driven panic selling that, by the rules of what is called contrarian investment philosophy, stocks are due for a turnaround. As of the first weekend in March, neither index had reached those extreme levels.

So it's not China. It's not Nancy Pelosi, it's not the Easter Bunny, nor is it the War on Easter. It has been said that all market psychology, all market movement, is a continuous oscillation between the mental polar opposites of optimism and pessimism, between greed and fear, between Pollyanna and Cassandra. Since at least the market rally that started in early 2003, optimistic Pollyanna has ruled the markets, and greed has run rampant. As the markets wait for Fed chairman Ben Bernanke to put on his best Donna Reed mask to bail out the subprime lenders with the Bailey family's honeymoon money, Cassandra and her fear are ruling the day.

And:

While the most recent slump was set off by a 9.2 percent plunge in the Shanghai and Shenzhen 300 Index on Feb. 27, U.S. shares have been hit by concern economic growth will slow.

Last week, reports showed that in January new-home sales dropped by the most in 13 years, while the economy also expanded less than initially estimated in the fourth quarter of 2006.

Alan Greenspan, former chairman of the Federal Reserve, weighed in by saying profit margins at U.S. companies are peaking and the growth cycle is in a mature phase. He also said there's a ``one-third probability'' of a U.S. recession this year.

Meanwhile, delinquencies and defaults on subprime mortgages, or home loans made to people with limited credit records or higher debts, are at the highest in at least seven years, a Feb. 22 report by Barclays Capital showed.

``We were just due for a correction,'' said Steven Folker, who helps oversee $3 billion as managing director at Fifth Third Asset Management in Cincinnati. ``We may not have seen the worst'' of the slump.

Wheeeeee!

Update: Yen carry trade:

NEW YORK (CNNMoney.com) -- As investors wonder if the global market selloff is reaching a bottom, economists are keeping a close eye on one big trading bet that could send more seismic tremors through Wall Street.

For more than a decade, investors have profited by borrowing yen at ultra-low interest rates and using the funds to buy higher-yielding investments based in other currencies - known in Wall Street parlance as the yen carry trade.

But last week's market swoon has brought risk back into focus, and a number of these borrowers have been unwinding those trades lately.

"There's been complacency and under pricing of risk across the board," said Nouriel Roubini, chairman of Roubini Global Economics, a research firm. But now many big investors, as well as policy-makers, are bracing for more volatility in the markets, he said.